Breece v. Under Armour, Inc.

Filing 166

MEMORANDUM ORDER denying 156 Plaintiffs' Motion for Partial Relief from the PSLRA Discovery Stay. Signed by Judge Richard D. Bennett on 2/18/2021. (krs, Deputy Clerk)

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IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
In re UNDER ARMOUR
SECURITIES LITIGATION
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Civil Action No. RDB-17-388

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MEMORANDUM ORDER
Lead Plaintiff Aberdeen City Council as Administrating Authority for the North East
Scotland Pension Fund (“Lead Plaintiff”), Monroe County Employees’ Retirement System,
and KBC Asset Management NV (collectively “Plaintiffs”), filed a motion for partial relief
from the discovery stay imposed by the Private Securities Litigation Reform Act of 1995 (the
“PSLRA”), 15 U.S.C. § 78u-4(b)(3)(B) (ECF No. 156). Through their Motion, Plaintiffs seek
the production of documents Defendant Under Armour, Inc. (“Under Armour”) has already
reviewed and produced to the Securities Exchange Commission (“SEC”) as part of the SEC’s
ongoing investigation into Under Armour’s accounting practices and revenue recognition
policies for the third quarter of 2015 through the fourth quarter of 2016. After reviewing the
parties’ submissions, this Court conducted a motions hearing on February 17, 2021. See Local
Rule 105.6 (D. Md. 2018). For the reasons stated on the record at the motions hearing, and
for the reasons that follow, the Plaintiffs’ Motion (ECF No. 156) is DENIED.
BACKGROUND
Lead Plaintiff filed the Consolidated Second Amended Complaint for Violations of the
Federal Securities Laws (ECF No. 78) on November 16, 2018, naming Under Armour and its
Chief Operating Officer, Kevin Plank (“Plank”), as Defendants. That Second Amended

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Complaint alleged that between September 16, 2015 and January 30, 2017, the Defendants
issued a series of false and misleading statements about demand for Under Armour products
and the company’s financial condition. (ECF No. 78 ¶¶ 2, 14.) On August 19, 2019, this
Court dismissed the Second Amended Complaint with prejudice. (ECF No. 98 at 26.)
Judgment was entered on September 9, 2019 (ECF No. 101), and on September 17, 2019,
Plaintiffs filed a notice of appeal to the United States Court of Appeals for the Fourth Circuit
(ECF No. 102). Based on newly-discovered evidence, Lead Plaintiff moved on November 18,
2019 for an indicative ruling (ECF No. 105), requesting that this Court grant Plaintiffs’ Motion
for Relief from the Court’s September 9, 2019 Judgment pursuant to Federal Rule of Civil
Procedure 60(b) (ECF No. 106), if the Fourth Circuit remanded for that purpose. On January
22, 2020, this Court granted that request. (ECF No. 139.) Accordingly, this Court held that
it would permit Lead Plaintiff to file a third amended complaint bringing claims against the
Defendants for violations of the Exchange Act. (Id.)
On October 14, 2020, the Lead Plaintiff filed the Plaintiffs’ Consolidated Third
Amended Complaint for Violations of the Federal Securities Laws (“TAC”) (ECF No. 153)
alleging that Defendants Under Armour and Plank misled investors during the Class Period
by falsely claiming that consumer demand for the company’s products was strong between the
third quarter of 2015 and the fourth quarter of 2016. Plaintiffs allege that the Defendants led
investors to believe that Under Armour’s 26-consecutive quarter 20% year-over-year revenue
growth streak was “safely intact,” when in reality demand for the company’s products was in
decline. (ECF No. 153 ¶¶ 148-168.) They claim that Defendants manipulated the company’s

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financial results by pulling sales forward from future quarters and engaged in other allegedly
suspect sales practices. (Id.)
On November 5, 2020, the Plaintiffs filed a Motion for Partial Relief from the PSLRA
Discovery Stay (ECF No. 156), in which they seek the production of documents Defendant
Under Armour has already reviewed and produced to the SEC as a part of its ongoing
investigation into Under Armour’s accounting practices and revenue recognition policies for
the third quarter of 2015 through the fourth quarter of 2016. On December 4, 2020, the
Defendants filed a Motion to Dismiss the TAC (ECF No. 159). The Plaintiffs seeks a lift of
the discovery stay imposed by the PSLRA prior to this Court’s ruling on the pending Motion
to Dismiss. 1
ANALYSIS
The Private Securities Litigation Reform Act (“PSLRA”) imposes constraints on
discovery in securities class actions. The PSLRA provides:
In any private action arising under this chapter all discovery and other
proceedings shall be stayed during the pendency of any motion to dismiss,
unless the court finds upon the motion of any party that particularized discovery
is necessary to preserve evidence or to prevent undue prejudice of that party.
15 U.S.C. § 78u-4(b)(3)(B). In essence, the PSLRA requires that plaintiffs make three separate
showings before a court may lift a stay. Pension Tr. Fund for Operating Eng’rs v. Assisted Living
Concepts, Inc., 943 F. Supp. 2d 913, 915 (E.D. Wis. 2013). “[I]t is necessary to show (1)
‘exceptional circumstances exist,’ such that allowing discovery would not violate the ethos of
the PSLRA discovery stay and further that (2) ‘particularized discovery’ is (3) necessary to

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Briefing on that pending Motion to Dismiss is scheduled to be completed by March 12, 2021.

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either (a) ‘preserve evidence’ or (b) ‘prevent undue prejudice’ to a party.” Id. (citing 15 U.S.C.
§ 78u-4(b)(3)(B)).
As stated on the record, the first two of these elements likely weigh in favor of granting
the Plaintiffs’ request. First, exceptional circumstances exist in this case, as the rationales
underlying the PSLRA’s discovery stay do not support continued imposition of a stay in this
case. In passing the PSLRA Congress was reportedly concerned with:
the routine filing of lawsuits against issuers of securities and others whenever
there is a significant change in an issuer’s stock price, without regard to any
underlying culpability of the issuer, and with only faint hope that the discovery
process might lead eventually to some plausible cause of action.
Teachers’ Ret. Sys. of La. v. Hunter, 477 F.3d 162, 171 (4th Cir. 2007) (quoting H.R. Rep. No.
104-369, at 41 (1995); H.R. Rep. No. 104-369, at 41 (1995)). The purpose of the stay provision,
therefore, is:
to minimize the incentives for plaintiffs to file frivolous securities class actions
in the hope of either that corporate defendants will settle those actions rather
than bear the high cost of discovery, see H.R. Conf. Rep. No. 104-369, at 37
(1995), or that the plaintiff will find during discovery some sustainable claim
not alleged in the complaint, see S. Rep. No. 104-98.
In re Royal Ahold N.V. Sec. & ERISA Litig., 220 F.R.D. 246, 249 (D. Md. 2004) (quoting In re
WorldCom, Inc. Sec. Litig., 234 F. Supp. 2d 301, 305 (S.D.N.Y. 2002)). When documents have
already been gathered and produced as a part of a government agency’s investigation, the
burdens of duplicating such discovery are low. See Assisted Living Concepts, 943 F. Supp. 2d at
915 (holding that plaintiffs had established “exceptional circumstances” element where they
sought documents disclosed to the SEC “partly because, where documents have already been
collected and produced to other entities, the burdens of discovery are far less substantial”).
The Plaintiffs in this case do not appear to be using burdensome discovery as a means to force
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the settlement of a frivolous lawsuit. Additionally, as the Plaintiffs’ claims relate to the subject
matter of the SEC’s investigation, it does not appear that the Plaintiffs are seeking discovery
in order to search for new claims to assert against the Defendants.
Second, although Plaintiffs’ discovery request is broad, it may be sufficiently
particularized. Requests for limited relief under the PSLRA are “sufficiently particularized”
when they refer to a “clearly defined universe of documents.” Royal Ahold, 220 F.D.R. at 250.
The current request is limited to the clearly defined universe of materials already produced by
Under Armour to the SEC. In Assisted Living Concepts, the court held that the discovery request
was particularized because it was “limited solely to relevant materials that [had] already been
produced in other proceedings.” 943 F. Supp. 2d at 915. However, as Judge Catherine C.
Blake of this Court noted in Royal Ahold, “‘particularized’ is not synonymous with
‘identifiable.’” 220 F.R.D. at 250. In Royal Ahold, Judge Blake did allow the plaintiffs’ request
for approximately one million documents but noted that such broad discovery was consistent
with “the nature of the underlying litigation.” Id.
Nevertheless, this Court need not decide whether Plaintiffs have shown their request
to be particularized in this case, as Plaintiffs cannot show the final element: that lifting the stay
is “necessary to either (a) ‘preserve evidence’ or (b) ‘prevent undue prejudice’ to a party.”
Assisted Living Concepts, 943 F. Supp. 2d at 915. Plaintiffs argue that undue prejudice to
securities plaintiffs occurs when they are deprived of access to key documents that have already
been produced to a government agency, relying heavily on Judge Blake’s opinion in Royal
Ahold, 220 F.R.D. 246. Judge Blake stated that “[w]ithout access to key documents that [had]
already been produced to [the] government . . . , the securities plaintiffs could suffer a severe
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disadvantage in formulating their litigation and settlement strategy—particularly if the parties
proceed quickly to settlement negotiations.” Id. at 252. This risk of “undue prejudice,” Judge
Blake stated, was “[t]he most compelling reason for allowing the discovery.” Id.
However, Plaintiffs’ reliance on Royal Ahold is misplaced. As Plaintiffs concede, Judge
Blake’s holding in Royal Ahold was in part based on the issue of preservation of evidence. In
that case, a corporate defendant was undertaking a “wide-ranging corporate reorganization”
in which it had “divested itself of key subsidiaries” and “plan[ned] to divest itself of more,”
including some “that allegedly played central roles” in the alleged misconduct. Id. at 251. The
court then lifted to the stay with respect to the corporate defendant to prevent the potential
loss of evidence, but refused to lift the stay as to one of the co-defendants specifically because
“[t]hat defendant, unlike Royal Ahold, [was] not reorganizing its affairs, so there [was] little to
suggest a risk of documentary loss.” Id. at 252-53. Following her assertion that the “[m]ost
compelling reasons” for lifting the stay was undue prejudice, Judge Blake added that “Royal
Ahold’s divestitures, again, add[ed] urgency to this concern.” Id. at 252. Royal Ahold does
not stand for the proposition that securities plaintiffs will be unduly prejudiced to a degree
warranting a lift in a PSLRA discovery stay whenever they lack discovery already produced for
an investigating government agency.
Further, this Court is unpersuaded by arguments that Plaintiffs are prejudiced given
Under Amour’s statements that it intends to cooperate with the SEC and its current financial
health. Plaintiffs contend that because Under Armour has publicly acknowledged that it
“expect[s] to engage in a dialogue with the SEC Staff to work toward a resolution of this
matter,” (Sanchez Decl., Ex. 2, ECF No. 156-3), Plaintiffs are prejudiced by the risk that they
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“will be left to pursue [their] action against defendants who no longer have anything or at least
as much to offer,” WorldCom, 234 F. Supp. 2d at 306. However, in WorldCom, the case from
which the Plaintiffs cite, the defendants were insolvent and in the midst of bankruptcy
proceedings, creating a demonstrable, concrete risk that the plaintiffs would be unable to
recover from the defendants if the discovery stay was continued. Id. at 304-06. As stated on
the record, the Defendants in this case have attested to the financial strength of Under Armour
at this time, and no comparable concrete risk of inability to recover exists in the case at hand.
Overall, “the burden of establishing the need for a partial lifting of the discovery
stay . . . is a heavy one.” In re Fannie Mae Secs. Litig., 362 F. Supp. 2d 37, 38 (D.D.C. 2005).
Although the burden on the Defendants in this case to produce the requested discovery is low
and Plaintiffs have shown exceptional circumstances for lifting the stay, “the proper inquiry
under the PSLRA is whether the plaintiff would be unduly prejudiced by the stay, not whether
the defendant would be burdened by lifting the stay.” In re Smith Barney Transfer Agent Litig., No.
05-CV-7583(WHP), 2006 WL 1738078, at *3 (S.D.N.Y. 2006) (emphasis added). For these
reasons and the reasons provided on the record, it is HEREBY ORDERED this 18th Day of
February 2021 as follows:
1. The Plaintiffs’ Motion to for Partial Relief from the PSLRA Discovery Stay (ECF
No. 156) is DENIED;
2. The Clerk of the Court shall transmit a copy of this Order to counsel of record.

_________/s/______________
Richard D. Bennett
United States District Judge
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